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    Project Analysis Based On Risk

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    Explain the following. A company estimates that an average-risk project has a cost of capital of 8 percent, a below-average risk project has a cost of capital of 6 percent, and an above-average risk project has a cost of capital of 10 percent. Which of the following independent projects should the company accept? Project A has below-average risk and a return of 6.5 percent. Project B has above-average risk and a return of 9 percent. Project C has average risk and a return of 7 percent.

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    One must accept that project in which Return is more than cost of capital.
    Hence let us discuss each project:
    Project ...

    Solution Summary

    This solution discusses project analysis based on risk. It helps find which independent project a company should accept. The estimated risks for each of the projects are given.